ACIT, CIRCLE-2(1), HYDERABAD vs. HINDUJA NATIONAL POWER CORPORATION LIMITED, HYDERABAD
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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”, HYDERABAD
Before: SHRI LALIET KUMAR, HON’BLE & SHRI MANJUNATHA G, HON’BLE
आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”, HYDERABAD BEFORE SHRI LALIET KUMAR, HON’BLE JUDICIAL MEMBER AND SHRI MANJUNATHA G, HON’BLE ACCOUNTANT MEMBER ITA No.257/Hyd/2024 Assessment Year: 2014-15 Assistant Commissioner of Vs. Hinduja National Power Income Tax, Corporation Limited, Circle – 2 (1), Sanathinagar, Hyderabad. Hyderabad – 500018. PAN : AABCH2426D
(Appellant / Assessee) (Respondent) Assessee by: Shri K. A Sai Prasad. Revenue by: Ms. TH Vijaya Lakshmi, CIT-DR Date of hearing: 31.07.2024 Date of pronouncement: 30.08.2024
O R D E R LALIET KUMAR, J.M.: This appeal is filed by the assessee, feeling aggrieved by the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 10.01.2024 for the A.Y 2014-15 on the following grounds :
The grounds raised by the assessee read as under : “The ld.CIT(A) erred in holding that interest income earned funds borrowed for project shall not be taxed without appreciating the decision of Hon'ble Supreme Court in case of Tuticorin Alkali Chemicals Ltd., in which it is held that netting off interest is not allowable and giving relief to assessee.”
2.1 The appeal filed by the Revenue is barred by limitation by 6 days. It has moved a condonation petition explaining reasons thereof. We have heard both the parties on this preliminary issue. Having considered the reasons given in the petition, we condone the delay and admit the appeal for hearing.
The brief facts of the case are that the assessee is a limited company, filed its return of income for A.Y. 2014-15 on 26.11.2014 electronically u/s 139(1) of the Income Tax Act, 1961 declaring total income of Rs.5,00,16,690/-. The said return was selected for scrutiny under CASS. Notice u/s 142(1) and questionnaire were issued and served upon the assessee. In response, assessee furnished information as called for. After examination and verification of the details produced / furnished, Assessing Officer concluded that interest receipts of Rs.14,36,66,185/- has to be brought to tax u/s 56 of the Act. However, Assessing Officer observed that assessee had set off Rs.9,66,36,005/- with interest income of Rs.14,36,66,185/- and offered the difference of Rs.4,70,30,180/- to tax and therefore, he disallowed the balance amount of Rs.9,66,36,005/- (Rs.14,36,66,185/- - Rs.4,70,30,180/-) and added back the same to the total income of the assessee u/s 56 of the Act. Thus, Assessing Officer completed the assessment u/s 143(3) r.w.s. 92CA(4) r.w.s. 144C of the Act.
Feeling aggrieved by the order passed by the Assessing Officer, assessee filed appeal before the Ld. CIT(A) / NFAC, who granted part relief to the assessee relying upon assessee’s own case passed by the Tribunal in AY 2012-13 and 2013-14 in ITA Nos.1263 & 1264/Hyd/2018 dt.18.02.2021.
Feeling aggrieved with the order of ld.CIT(A), Revenue is now in appeal before us.
The ld.DR has drawn our attention to Para 6.02 of the AO wherein it was mentioned as under :
“6.02 The assessee has received Rs.14,36,66,185/- as interest from Fixed deposits kept in bank and set off Rs.9,66,36,005/- interest payable to banks u/s 57. In the course of assessment proceedings the assessee is requested to explain [the setting of interest received against the interest paid under section 57 of the Act. The assessee replied as under: "With regards to reasons asked for deductions claimed u/s 57(iii), we wish to submit that we are setting up state of the art Power generation plant at Visakhapatnam, A P. The total cost of out project would run in to thousands of crores and a part of these costs of the Project is being met through borrowed funds from various financial institutions. Also as the project is a mega power project and involves complex engineering, planning, execution, and equipment, we have given the work of erection etc., to industry leaders like BHEL, Gammon India Limited etc. During the setup process, the supplies, insist on opening letter of credit (LC) for honouring their payments. Accordingly, for opening such LCs the bankers ask to deposits certain sums in Fixed deposits as margin money for opening the LCS. The interest received on such fixed deposits is offered to tax under the head income from other sources u/s 56 of the Income Tax Act and the interest paid on the borrowings utilized for keeping the fixed deposits is set off u/s 57 of the Income Tax Act against the interest received. Resultantly, only the net interest is offered to tax as income from other sources u/s 56 of the Income Tax Act because of the direct nexus between the funds borrowed, which are kept in banks fixed deposits and interest earned on such fixed deposits. In this context, we seek to rely on the following decisions:
a. Rajendra Prasad Moddy 115 ITR 519 (SC) b. Bokaro Steel, 151 CTR 276 (SC) c. CIT v/s Andhra Far, 171 ITR 660 (AP) and (B) provisions of section 57 (iii) of I T Act, 1961
6.1. The ld.DR has submitted that there is no verification of facts as to the amount required to be deposited for issuance of letter of credit by the bank and further, the amount borrowed for the mega project and interest paid on that. It was submitted that in the absence of these, the orders of lower authorities are not in accordance with law. 7. On the other hand, ld.AR for the assessee submitted that the interest received on fixed deposit is offered to tax under the head income from other sources and interest paid on the borrowing utilization for keeping the fixed deposit, is set off under Section 57 of the Act against the interest received. The AO was not convinced with the submissions of the assessee and had disallowed the expenditure i.e. interest set off be payable to the bank amounting to Rs. 9,66,36,005/-. He relied upon the case of assessee’s own case passed by the Tribunal in AY 2012-13 and 2013-14 in ITA Nos.1263 & 1264/Hyd/2018 dt.18.02.2021.
We have heard the rival submissions and perused the material on record. The issue to be decided in the present case is whether the interest paid by the assessee can be adjusted against the earned income by the assessee on the fixed deposit made by it or not. The law has been settled by the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Limited reported in 227 ITR
172, wherein it has held that prior to the commencement of the business, there cannot be any adjustment of interest payable by the company against the interest earned by it. However, thereafter, another judgment was passed by the Hon'ble Supreme Court in the case of CIT Vs. Karnal Co-operative Sugar Mills dated 23.04.1999 wherein the Hon'ble Supreme Court has distinguished the decision in the case of Tuticorin Alkali Chemicals and Fertilizers Limited (supra). In our view, a close reading of the Hon'ble Supreme Court in the case of Karnal Co-operative Sugar Mills what has been laid by the Hon'ble Supreme Court was that the interest income earned on such deposits, which is a direct link for the purchase of plant and machinery, had been capitalized and could not be assessed as income from other sources. The relevant para of the Hon'ble Supreme Court in the case of Karnal Co-operative Sugar Mills is reproduced hereinbelow : “In the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest. The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is incidental to the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio laid down by this court in Tuticorin Alkali Chemicals and Fertilizers Limited v. CIT , will not be attracted. The more appropriate decision in the factual situation in the present case is in CIT v. Bokaro Steel Ltd. The appeal is dismissed. There will be no order as to costs.”
In light of the above, we are of the opinion that the AO is required to verify as to what was the amount deposited by the assessee to open the letter of credit for honoring its payment, which are directly relatable for setting up of its plants. In case, on
verification, the AO concludes that the interest of Rs.9,66,36,005/- is directly relatable to the interest payment made for deposit in the bank for obtaining a letter of credit, the same shall be allowed. However, if the same is not relevant to the said interest, then the same shall be dealt with in accordance with the law, and more particularly, in light of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Limited (supra). In our view, further, the decision of the Hon'ble Co-ordinate Bench in the case of the assessee has not dealt with the above-said issue and had no occasion to deal with the issue on facts, and therefore, the same are clearly distinguishable and are not applicable to the present case. In light of the above, the appeal of the Revenue is allowed for statistical purposes. 10. In the result, the appeal of the Revenue is treated as allowed for statistical purposes.
Order pronounced in the open Court on 30th August, 2024.
Sd/- Sd/- Sd/- Sd/- (G. MANJUNATHA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER
S- Sd/- Sd/- Hyderabad, dated 30th August, 2024. TYNM/sps
Copy to:
S.No Addresses 1 Hinduja National Power Corporation Limited, Gulf Oil Corporation Limited, Post Bag No.1, Kukatpally, Sanathnagar, Hyderabad – 500018. Telangana. 2 The Assistant Commissioner of Income Tax, Circle – 2(1), Hyderabad. 3 PCIT, Hyderabad. 4 DR, ITAT Hyderabad Benches 5 Guard File By Order
